Rate rises to hit 70,000 customers

Sat, Jul 28, 2012, 01:00

THOUSANDS OF AIB customers with an average-sized home loan will see their repayments increase by more than €1,000 annually after a sharp increase in its Standard Variable Rate (SVR).

About 70,000 AIB customers will see the rate on their SVR mortgages increase from 3 per cent to 3.5 per cent in September, while the bank’s variable rates for investors will jump from 3.95 per cent to 4.45 per cent.

For every quarter of a point rate increase, the monthly cost of servicing a €100,000 mortgage goes up by about €15, meaning an AIB SVR customer with an outstanding loan of €300,000 will see monthly increases of €90 from September 3rd. About 20 per cent of AIB’s mortgage customers will be affected by the move.

David Duffy, chief executive of State-controlled AIB, defended the move and said the “regrettable but necessary increases in the mortgage rate” were required to return the bank to viability.

He said the rate increase would help the bank to become profitable again and attract outside investors to return some of the €21 billion injected into the bank by the Government.

The high cost of raising deposits meant the bank was losing money on mortgages, he said. “Every time we write a mortgage we lose money,” Mr Duffy said.

The bank, which has the largest number of Irish mortgages, is cutting costs by reducing staff numbers by at least 2,500, or one in every six staff, and closing 67 of its 267 branches, which is one in every four.

Mr Duffy said the bank’s SVR mortgage, at 3.5 per cent, was still the lowest rate in the market. The bank would not commit to “any specific number” on where the standard variable rate must rise to to become profitable, he said.

Earlier this month, the European Central Bank cut its interest rates by a quarter of a percentage point to 0.75 per cent, a new record low. It was the third rate decrease announced by the bank since late last year.